SOUTHERN LEGISLATOR ON PUBLIC FEARS ABOUT THE ECONOMY AS

C O N F I D E N T I A L HO CHI MINH CITY 001055 STATE FOR EAP/MLS E.O. 12958: DECL: 11/7/2028 TAGS: ECON ETRD EIND PGOV PREL SOCI VM SUBJECT: SOUTHERN LEGISLATOR ON PUBLIC FEARS ABOUT THE ECONOMY AS THEY PLAY OUT IN THE NATIONAL ASSEMBLY CLASSIFIED BY: Kenneth J. Fairfax, Consul General, U.S. Consulate General Ho Chi Minh, Department of State, REASON: 1.4 (b),(d) Please note: This cable was originally transmitted on Nov 7, 2008, but due to technical difficulties was not properly disseminated. We are retransmitting now. ¶1. (C) Vietnam's National Assembly is bracing for the impact of the global financial meltdown, according to National Assembly delegate and chairman of Vietnam's largest retailer Saigon Coop, Nguyen Thanh Hoa. On break from the current National Assembly session in Hanoi, Hoa explained that "most everything" on the minds of delegates, whether disciplining state-owned enterprise investment or improving product safety, relates back to anxiety over the state of the world economy and trade. But delegates aren't talking about slowing down the pace of reform, and this means opportunities for the United States, especially apples, milk and even processed foods, because Vietnamese consumers are shifting from brand-recognition to country of origin as a leading factor in their buying decisions. End Summary. A Rarity -- Business Leader and Legislator -------------- ¶2. (C) National Assembly member Nguyen Thanh Hoa returned to Ho Chi Minh City on November 7 to catch up on his responsibilities as Chairman of Vietnam's largest retail chain. Saigon Coop boasts 45-50 percent market share in Vietnam's modern retail sector with more than 40 stores in 13 provinces. This year Saigon Coop will expand to the Central Highlands province of Dak Lak and Mekong Delta province of Ben Tre in order to capture some of the increased purchasing power in these areas. National Assembly Eyes SOE Investment and Gas Prices -------------- -------------- ¶3. (C) Hoa said the National Assembly is now focused on "the Government of Vietnam's (GVN) handling of the economy" and the country's exposure to the global financial crisis. Publicly, this translates into debate over "how to best stabilize life and production and the environment for doing business." Referencing a recent paper that Prime Minister Nguyen Tan Dung requested the Fulbright Economic Teaching Program (FETP) prepare in October, Hoa said he and his NA colleagues are very concerned that the GVN had not yet reigned in state-owned enterprise investment. This, he stated, is a root cause of persistent high inflation in Vietnam. ¶4. (C) During the current October 16 to November 15 session, a number of delegates have spoken at length on the need to restrict additional state investment into SOEs and to better supervise current SOE investment practices so that misdirected investment does not contribute to inflation, he explained. Hoa believes the National Assembly is getting some traction, noting that in early November, the GVN announced it would reallocate 10 of 13 Electricity of Vietnam (EVN) power projects to private sector and foreign investors. The NA has also recommended that the GVN not invest more money into SOEs, he added. ¶5. (C) How SOE monopolies manage the price of their products (e.g., gas or electricity) is becoming another big concern for NA members, Hoa stated. He says his constituents are frequently pointing out that while the world price of oil has dropped precipitously, the price of petrol in HCMC has come down only slightly. Milk is another important example, Hoa continued, where a drop in the price of imports hasn't been passed along to consumers. Consumption Shifting, Favoring U.S. -------------- ¶6. (C) The National Assembly is also discussing food safety and looking for ways to protect consumers, but already Vietnamese are changing their behaviors, Hoa said. Saigon Coop is Vietnam's largest retail chain, he explained, and is a good indicator of Vietnam's financial health. Despite a "slight" 10 percent slowdown over the last month, his company is still on target for 2008 revenues of USD $368 million. ¶7. (C) Hoa observed that imported food accounts for 10 percent of Saigon Coop's sales. Over the last few months, Saigon Coop sales of food products from China are down sharply because "people are checking the labels and if they see China, they look for something else", he said. For example, in most of their stores, Saigon Coop has seen sales of Chinese grapes drop sharply and demand for U.S. grapes rise. Hoa said he is working with U.S. exporters to find supplies of apples, pairs, grapes, fresh milk, milk powder and even salmon. When asked how, as a National Assembly member, he viewed recently announced tariff hikes on imported chicken, Hoa said that while he was personally opposed as a retailer, it was a government decision enacted by the Ministry of Finance. Future of Retail Determined by Market, not GVN -------------- - ¶8. (C) Even in the current turmoil, few are calling for protectionism or a slower pace of economic reform, Hoa noted. In Saigon Coop's case for instance, retail and distribution will be liberalized next January 1, he explained, adding that Saigon Coop has the people, locations and capital to compete with foreign investors. Rather than lobbying the GVN to implement policies that might privilege domestic retailers, Saigon Coop is actively looking for foreign strategic partners to help develop modern retail in Vietnam. In fact, Hoa assessed that the biggest challenge facing Saigon Coop continues to be training (which usually means an international business degree) and retaining enough managers skilled in modern retail. Comment: -------------- ¶9. (C) Saigon Coop had a long history as an SOE before it was reorganized into a cooperative. In fact, the previous chairwoman of Saigon Coop Ms. Nguyen Thi Nghia was also a National Assembly member, as well as a leading HCMC Party member. So when Hoa tells us that delegates are worked up about the GVN's handling of SOEs investment, things are getting serious. That Hoa translated the official line "stabilize life and production and the environment for doing business" into National Assembly concern about "the GVN's handling of the economy" shows not only that delegates know there are limits to what they can say but also they are taking their job as representatives of the people seriously and trying to find ways to ask the questions anyway. End comment. ¶10. (U) This cable was coordinated with Embassy Hanoi. FAIRFAX